Our Real Estate Blog

Mortgage delinquencies rise for second quarter in a row

August 26th, 2011 6:32 PM by Lehel S.

In an ominous sign for the housing market, the percentage of homeowners who have missed at least one mortgage payment has risen for the second straight quarter.

The latest snapshot of the economy showed that an improvement in nationwide delinquency rates since last fall appears to have ended. The Mortgage Bankers Assn. said in its second-quarter survey that the stubborn U.S. employment picture appears to be creating new problems for the nation's still-struggling housing market.

The overall delinquency rate for loans on one- to four-unit residential properties increased to 8.44% on June 30, up from 8.32% on March 31 and 8.25% on Dec. 31. The delinquency rate was slightly lower at 8.12% in California, one of the states hit the earliest and hardest by the housing meltdown.

"It is clear that the downward trend we saw through most of 2010 has stopped," the mortgage bankers' chief economist, Jay Brinkmann, said after the report was released Monday. "Mortgage delinquencies are no longer improving and are now showing some signs of worsening."

He said the number of missed mortgage payments typically increases when unemployment rises. The government recently reported that weekly first-time claims for unemployment insurance started the second quarter at 385,000 but finished it at 432,000, and the jobless rate rose during the quarter to 9.2% from 8.8%.

California, where unemployment hovers at about 12%, appears to be showing some signs of stabilization. For instance, loans on which one payment had been missed rose by 0.39 of a percentage point nationally during the quarter but just 0.15 of a percentage point in California, according to the Mortgage Bankers Assn.

The percentage of delinquent subprime loans made to risky borrowers was also lower: 22.14% in the state and 24.33% nationally, the trade group said.

Defaults on these high-risk mortgages to people with flawed credit hit California particularly early and hard in the housing bust. But lenders in the state seem to be working their way through problems with the loans faster because they got a jump on them.

Foreclosure proceedings are highly streamlined in California, helping to flush out the backlog of soured loans faster and to begin creating some stability in housing.

However, the delinquency rate for prime loans, made to more creditworthy borrowers, was higher in California than nationwide: 6.78% in the state, compared with 5.66% in the countyPrime loans tend to go into default in large numbers only when the economy sours and jobs are lost.

"We've been dealing with this longer in California," said John Husing, an Inland Empire economic consultant. "If you look at Inland Empire prices, they're about 10% above their low point, although they've leveled off for some time and aren't rising.

"Whereas, nationally, prices are now aboutattheir lows."

Another brighter part of the picture: serious delinquencies — those with three or more missed payments or that are in foreclosure — were still declining nationwide.

During the second quarter, this measure decreased to 7.85% from 8.10% in the first quarter and 9.11% in the second quarter of 2010. And the percentage of homes in which foreclosure proceedings began during the quarter was 0.96%, the lowest level since the fourth quarter of 2007.

Richard Green, director of the USC Lusk Center for Real Estate, cautioned against reading too much into small changes month to month. But he too noted that California's real estate markets have stabilized more than many others.

At the current sales pace, it would take about 5 1/2 months to sell all the homes listed for sale in California, which is a normal backlog, Green said. "And if you're looking at a home under $500,000 in California, it's less — three months or four months or five," he said.